Better Buy Now: Nvidia or the Other 29 Stocks in the Dow Jones Industrial Average?

Nvidia (NVDA 2.15%) recently took the place of Intel in the Dow Jones Industrial Average (^DJI 0.42%), increasing the index's focus on technology and semiconductors.

Given that Nvidia's stock price has surged 910% since early last year, some investors are questioning if buying it now is wise, or whether they should consider investing in other options.

This article will explore why Nvidia could still be a worthwhile growth stock, alongside reasons why investors might find better opportunities within the Dow.

Reasons to Buy Nvidia

Nvidia has evolved from primarily a gaming and graphics company to a leader in the cutting-edge field of artificial intelligence (AI). If you trust that Nvidia will stay ahead in AI and that its clients will profit from AI, leading them to purchase more products from Nvidia, it could be a good buy.

Despite worries that the AI boom is slowing, Nvidia continues to show excellent sales and profit increases. Over the past year, Nvidia's stock has risen by 130.7%, while its earnings grew by 112.6%. While the price may seem high, analysts predict a cooling off in growth, forecasting fiscal 2026 earnings per share (EPS) to be $4.37, up from $2.95 in fiscal 2025. Nevertheless, this would still be a whopping 48% earnings growth in just one year.

For Nvidia to outperform the Dow in the long run, it would need its profits to grow alongside its current stock price. For instance, if Nvidia's average earnings growth is 25% over the next five years, even if the stock price rises by an average of 20%, it could still do better than the Dow and the S&P 500, which has historically seen about 10% annual growth. With sustained growth, Nvidia’s price-to-earnings (P/E) ratio could even fall from 56.1 to 37.3 over a decade.

In the stock market, sustained earnings growth is incredibly powerful. Nvidia doesn't need to double its profits every year to be a good investment, but any significant slowdown could make the current valuation look inflated.

Reasons to Invest in a Dow ETF Instead

Rather than purchasing individual stocks within the Dow, you might consider investing in a Dow exchange-traded fund (ETF) like the SPDR Dow Jones Industrial Average ETF Trust (DIA 0.53%). This ETF has a low expense ratio of 0.16% and manages around $37.7 billion in assets. Since the Dow is price-weighted, Nvidia only represents about 2.1% of the entire index. Therefore, if you invest $1,000 in this ETF, only about $21 would go to Nvidia, with the remaining $979 allocated to the other 29 companies.

The Dow offers a more balanced approach for investors looking for something with better value and while yielding income. The SPDR ETF carries a 26.2 P/E ratio and a yield of 1.7%, making it a more attractive option compared to the 29.8 P/E ratio and 1.3% yield of the Vanguard S&P 500 ETF or the higher 41.2 P/E ratio and 0.6% yield from the Invesco QQQ Trust, which tracks large stocks from the Nasdaq-100.

Choose Your Investment in a Way That Suits You

Nvidia's remarkable transformation has made it a standout in the tech industry, but this growing valuation raises concerns for some investors. If you prefer to minimize your exposure to Nvidia but still want to participate in the growth of top companies, a Dow ETF is an excellent choice. There are also other cost-effective ETFs to consider for those prioritizing income and value, such as the Vanguard Value ETF, the Vanguard Mega Cap Value ETF, and the Vanguard High Dividend Yield ETF.

Nvidia's rapid rise is unparalleled in recent years, and its strong earnings are a significant part of its story. Unlike many high-growth companies that rely on future profits, Nvidia is showing remarkable earnings growth now. For example, it reported a record net income of $19.3 billion, compared to Microsoft's recent net income of $24.7 billion.

As one of the most profitable companies worldwide, Nvidia is expected to continue rewarding investors as long as it maintains its growth. However, this does not mean it’s the right investment for everyone, especially those with lower risk tolerance.

Nvidia, Dow, Growth, Investment, Stocks